The Kogan.com Ltd (ASX: KGN) share price is under the spotlight after giving the market a FY23 trading update for the four months to October 2022.
Kogan is an e-commerce business. It is predominately a retailer, but customers can also purchase services on the website like mobile plans and insurance.
FY23 trading update
The e-commerce ASX share revealed that its gross sales were down 38.2% year on year to $267.6 million.
Kogan said that the year-to-date sales reflect a period of subdued sales activity for the company, whilst cycling strong results in the prior year that was impacted by COVID-19 lockdowns.
However, the business claimed it’s achieving strong results through Kogan Marketplace, Mighty Ape and Kogan First, while also returning to growth with Kogan Mobile.
The decline of sales had a knock-on effect to gross profit, which was down 40.6% to $41.1 million. This was impacted by the accelerated “sell-through” of excess inventory, with “significant” discounts offered to customers. This will be completed by “early calendar 2023”.
As a result of lower sales and gross profit, the adjusted EBITDA (EBITDA explained) dropped to a loss of $0.5 million.
However, Kogan finished October with a net cash position of $20.1 million.
Key trading period
The ASX retail share noted that we are entering the peak trading period of between Black Friday and Christmas – which the business said it’s selling-through excess inventory.
November and December are “typically the most important months of the year for the business, with strong trading performance in these months throughout prior years.”
Management try to reassure investors
With this update, Kogan said:
The company does not believe that the year to date FY23 trading result is indicative of projected trading performance once the final sell-through of excess inventory is completed, and looks to the FY23 second half with confidence in its ability to return to an agile, inventory-light business returning strong operating margins.
Final thoughts on the Kogan share price
Kogan shares have sunk around 60% since the start of the year. But, interestingly, it is up around 7% in early trading.
I’m not sure about the logic of selling hundreds of millions of dollars of products but not making any profit in doing so. Kogan seems to have had excess inventory for quite a while now.
It may well get back to have solid profit margins, but it’s surprising to say the least about how long it is taking. Perhaps a turnaround is just around the corner, but I’m not sure what the future economics of the business looks like. So, there are other ASX growth shares I’d invest in first that have also been sold off heavily this year.
